No Cashiers and Hyper-Local: What the US Can Learn from China’s Automated Retail
Taking advantage of the prevalence of mobile payments and a huge urban population, several Chinese startups are leading the way in developing the future of automated retail. These cashier-less and tiny stores are addressing a market for low overhead and hyper-local shopping that could also find a market in growing US cities and the more convenience oriented millennials that are flocking to them.
While there are a number of automated retail players well-funded by Chinese titans like JD.com and Alibaba (Hema Stores), BingoBox is one of the fastest growing players in China’s “New Retail” (新零售) market. The startup focuses on automated retail with completely unmanned convenience stores the size of a shipping container. Customers gain entry to the store by scanning a QR code and then select from 400–800 items laid out cleanly on 7-Eleven style shelves, making their final purchase through a simple self-checkout cashier terminal.
Given that most American’s automated vending experience is limited to gas station sodas and office snacks of last resort, there are opportunities to apply China’s vast experiment in automated retail to the relatively under-developed vending market in the US.
Why China’s Retail Market is Different
First let’s look at what makes China different to provide context to the rise of automated retail there:
Urban density
China has a total urban population nearing 800 million. Over 160 cities in China have a population over one million people. That’s serious foot traffic for convenience shopping.
eCommerce Expertise
With China’s eCommerce market on pace to double that of the US by 2022, local Chinese giants like Alibaba and JD.com provide a large pool of managerial talent familiar with logistics and shopping experience optimization.
Open-minded and mobile-first consumers
This is admittedly harder to quantify, but there is a tangible feeling of openness to new tech in China. Higher mobile payments penetration is one famous example (35% of China’s 724 million mobile phone users “often” make mobile payments) — whereas the US is largely still using credit cards.
How BingBox’s Model Can Win
While China’s unique market conditions certainly contribute to supporting new retail innovation, BingoBox still has to compete against the thousands of existing convenience stores and delivery options. The startup employs several business model innovations to win:
Lower staffing costs:
Staff-less stores mean lower costs. Currently seven back-end remote team members can monitor and manage around 40 BingoBox stores (including answering customer questions and checking in on inventory). In contrast the usual 7-Eleven employs associates at an average of 9 USD/hr (roughly 15 RMB /hr in China)
Cheaper real estate:
BingoBox can pick cheaper real estate within apartment complexes due to the store’s smaller footprint, or pick locations off main thoroughfares. Retailers with staffing overhead like 7-Eleven need prime foot-traffic to stay profitable and do not have the option to seek cheaper real estate
Lower Customer Acquisition Cost:
Digital customer acquisition costs have been rising as competition for reaching customers over crowded channels has increased.
On WeChat (one of China’s main social media paid acquisition channels) acquiring one additional follower costs 80–100RMB on average, and that’s before brands convert them to a purchase.
BingoBox avoids these costs by simply being visible and immediately present in a customer’s neighborhood.
Super-Convenience:
BingoBox, with its smaller footprint, can get just a little bit closer to customers than traditional convenience stores. Even saving 2–3 minutes of walking could be enough to sway customers.
The Opportunity for Automated Vending in the US is Still Big
The US lacks the urban density of China and is generally not as quick to adapt new mobile-payment driven models. However, there are still big opportunities for automated retail in the US:
Urbanization is likely to increase:
Millennials prefer city living, and better job growth in established large metros has compounded a trend leading to the growth of Americas largest cities. From 2010–2013 10 US cities experienced over 5% population growth.
Smaller households and less bulk-purchasing:
Millennials are living as single adults or couples without children for longer, with the average the majority of mothers having only 2 children by age 40. This means less bulk runs to warehouse and big box stores, and more last minute picking up just what one needs for the night. Sam’s Club recently closed 64 stores, and IKEA and Target are pursuing more aggressive small-footprint and urban locations.
Existing delivery networks aren’t fit for small convenience purchases:
While the US has a mature eCommerce market with options for delivering everything from groceries to home goods, small convenience purchases like single snacks and drinks don’t make sense over the dominant existing delivery infrastructure. Amazon prime incurs a delivery cost of $2–4 per package and actively incentivizes Prime members to batch their orders of small “pantry” items to avoid poor unit economics for small deliveries.
The impulse nature of convenience purchases and the relative high shipping cost for small non-batched items leaves a space open for offline automated retail.
Automated Retail Will Still Require Adaptations for the US
While smaller more urban households in the US could expand the convenience shopping market, a BingoBox-like model will still need to be adapted to succeed here.
Take advantage of existing gas station + car infrastructure:
The US city is still (unfortunately) built around the car. The US has 0 of the top 10 public transit systems per the 2017 Sustainable Cities Mobility Index and a few minutes spent in any American city will quickly reveal the domination of highways and parking lots.
Whereas in China automated retail outlets can be placed close to subway stops and dense housing communities, the US version may need to be car-centric. This means placements where cars frequently stop (gas/charging stations, or future ride share drop off points) or in the cars themselves (startup Cargo has already started vending out of Ubers and Lyfts).
Target corporate providers:
US companies are increasingly using benefits like free food and snacks to attract and retain talent. While large well-funded companies can afford the roughly $780-$2,080 spend yearly per employee on free snacks, newer or smaller companies may not be able to.
Economies of scale achieved by a larger consolidated retail vendor can bring the cost of snack inventory management down for small to medium sized companies. They could also be given a sliding “subsidy” scale where firms can choose to cover a portion of snack costs for employees but still ask them to chip in for a portion of the cost.
Key Takeaways
- The market conditions of China’s highly urban population and open-minded consumer base is allowing for rapid experimentation and innovation in automated retail
- Similar retail solutions can be applied and adapted to a US market that is increasingly urban and likely to conduct more frequent but smaller shopping trips for convenience items
Sources / Further Reading
Quartz Analysis on China’s Automated Retail: China is both ahead of and behind Amazon in cashier-less stores
GGV’s 996 Podcast | Episode 18: Zilin Chen of BingoBox on the Future of “New Retail” in China
Originally published here on The ZMTD
